Tokenization of Financial Assets is Coming. What Investors Need to Know. — Barrons.com

By Steve GarmhausenTokenization of financial assets is coming. The idea is that stocks, bonds, funds and even cash will be recorded as digital tokens on a blockchain, rather than in brokers' ledgers. That could mean fast settlement, trading around the clock, fractional ownership, easier access to U.S. markets for overseas investors, and new ways to borrow against holdings. But the hype may be ahead of reality. For this week's Barron's Advisor Big Q, we asked five wealth managers: Is tokenization a big deal for markets, for advisors, and for their clients?Melissa Cournyer, CEO, Konvex Wealth: It absolutely is a big deal. That's why the government is trying to pass legislation, like the Clarity Act, which recently failed. It's a big deal because it will bring more transparency and credibility to the system. Everything on the blockchain is visible, so everyone will have a fair opportunity to partake. You're not going to have dark pool trading or institutional trading be such a big deal anymore. I think it will change the game. Younger folks have taken hold of digital assets; they are more used to that type of technology, and I think that could potentially disrupt the banking system. That's why banks and wirehouses are joining in. They know this could potentially be a huge disrupter, and they're going to get left behind if they don't participate in what's happening.Will it be disruptive to clients? Yes and no. Clients who are interested in digital assets now are going to be interested in them in the future, and they're reliant on their advisor to tell them about that industry. I don't necessarily think clients are going to want to know the nuts and bolts of blockchain and digital assets. So instead of really being disruptive to clients, I think it's going to be more disruptive to advisors and wealth managers who don't get on the train.Folks who don't understand it or refuse to educate themselves are going to have a tougher time talking to clients. Four years ago I and my associate advisors all got certified in digital assets and blockchain. It isn't necessarily, hey, we're going to use this with every single client, but we need to know about it because people are going to ask questions.Drew Besonson, partner, wealth management advisor, OnePoint BFG: Tokenization is the next chapter. The question isn't whether this happens, but how fast. My view is that the infrastructure shift is real, and it's being driven by institutions. In 1968, trading volume outran the paperwork. Back offices couldn't process stock certificates, and the New York Stock Exchange closed every Wednesday from June 12 through the end of the year just to catch up on the paperwork. The same institution that was put in place then, the Depository Trust Company, is running a tokenization pilot today. It's the same process issue that we had before, it's just solved with newer technology.People want to know if tokenization is a meaningful shift or is it being overhyped. To me, it's both. This is real. However, the pitch is ahead of itself. The real challenge is how ownership is recorded, how trades are settled. That's going to last. What's overhyped is the retail promise of trading anything around the clock in tiny slices. That all depends on liquidity, pricing, and legal eligibility, and technology does not solve any of those on its own.I expect this to be an evolution, not a revolution. I see three realistic paths for the next five years. The first is gradual adoption inside existing market rails. The second is a parallel market, tokenized shares, and runs alongside traditional trading. The third is a convergence, where settlement and record-keeping move largely on chain. What I'll watch is liquidity, whether prices stay consistent across venues, and whether companies and regulators get comfortable with the structures.Rick Lear, chief investment officer, Lear Investment Management: It's insane how long it takes to transfer a stock in 2026. If you want to move 100 shares of Apple from one discount broker to another, it's this long, crazy process where your money's just in limbo for seven business days. It's absolutely ridiculous that we can't move things faster. This whole business is built on rails from a long time ago. So being able to move things fast and efficiently on rails like a blockchain makes total sense. It would be a huge deal.But here's the thing: If you're a big firm, do you want clients to be able to move their stock that easily? We can talk about all the benefits of tokenization: easier to buy, easier to register, easier to transfer, easier to lend against, easier to administer. Those are all true. However, there's going to be a lot of friction, because big incumbent firms have systems that are based on the old way. I mean, there are whole buildings of people that transfer stocks and bonds. So it will take time. And there's a lot that has to happen still, including the fact that you need a lot of computing power.Patrick Nerney, director of investment solutions, Dynasty Financial Partners: It's definitely a big deal. A lot of the headlines have been about round-the-clock trading. But the changes we could see in settlement and more importantly collateral are most interesting to advisors.The ability to [borrow against] assets is something a lot of advisors are interested in. Technologically this side of the market [borrowing] has lagged behind where we are from a trading perspective.Let's say you own $1 million worth of Ford. The traditional amount you can draw off of that position is 50%. You could take $500,000 and go do something with it, whether it's to meet capital calls or put an addition on your house. It's just an alternative financing.What has always held this up is what the market is willing to accept and regulations. It's almost like autonomous driving, where it was getting closer and closer. All at once all of this is going to come online, and it's going to be like, oh, OK, this is the world we live in. It's a huge leveling of the playing field, which I think is going to be really interesting for not just advisors but clients that are interested in unique exposures.Write to [email protected] content was created by Barron's, which is operated by Dow Jones & Co. 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